BPC Symposium: Housing Finance Reform: Is Inertia Gaining Momentum?

On Monday, June 17, the Bipartisan Policy Center Housing Commission held a symposium on “Housing Finance Reform: Is Inertia Gaining Momentum?” The keynote speaker, Lew Ranieri – considered the “father” of the securitized mortgage market – answered the question by characterizing the status quo as not only unsustainable, but unacceptable! He outlined three reasons for this view: (1) The federal government should not “own” the mortgage market, (2) The current credit box is foreclosing homeownership opportunities for working families across the country, and (3) Tight credit is limiting economic growth.

Ranieri noted “Fannie received $117 billion in Treasury draws…[and] I believe the cumulative dividends paid by Fannie could exceed the $117 billion in senior preferred stock owned by the Treasury late this year or early 2014,” and expressed concern that Congress and lenders will get comfortable with the status quo as revenues from Fannie and Freddie continue to flow.

He stressed that the current credit box makes it extremely hard for working families to buy a home. “Between 2007 and 2012, originations with credit scores between 620 and 680 declined 90 percent while only 30 percent for scores above 780. The median credit score skyrocketed from 730 in 2007 to 770 this year.” These tight credit standards slow the housing market and provide a major drag on economic growth.

Sarah Rosen Wartell, President of the Urban Institute and Mark Calabria of the Cato Institute followed Ranieri and agreed that the status quo was both unsustainable and unacceptable. Wartell noted that an emerging consensus supports some type of limited government guarantee for catastrophic risk, in which the private sector takes the first loss credit risk. Calabria agreed on the need for change, but argued that the government should be out of the mortgage guarantee business. Both Wartell and Calabria agreed that Congress is unlikely to act this year or next, and that the process of reform would take at least three or four more years.

Jim Lockhart, Vice Chairman of WL Ross & Co and the head of the Federal Housing Finance Agency when Fannie Mae and Freddie Mac were placed in conservatorship, expressed “surprise” that the mortgage giants were still in conservatorship five years later but said he thinks it will take another five or ten years to wind them down. He emphasized the importance of beginning the dialogue now, because the process of getting any housing reform legislation through Congress is likely to be lengthy.

Three industry experts also spoke on their perspectives on housing finance reform. David Stevens, President of the Mortgage Bankers Association, pegged a longer timeline on reforming Fannie Mae and Freddie Mac. Like previous speakers, he agreed that the status quo is unacceptable, but predicted that real movement on housing finance reform will not happen until the beginning of the next president’s term. Kevin Kelly, President of Leon N. Weiner & Associates and slated to serve as the Chairman of the National Association of Homebuilders in 2014, highlighted the importance of housing finance reform not just for single family housing but for multifamily rental housing as well. Barry Zigas, Director of Housing Policy for the Consumer Federation of America and a member of the BPC Housing Commission, stressed the need for less conversation about the means and more on the ultimate ends of housing finance reform. “We need to refocus the dialogue on mission and purpose to understand who will be served by housing finance reform.”